Porter Five Competitive Forces Finance Essay

IOI Group Berhad referred as Industrial Oxygen Incorporation Sdn Bhd. IOI Group Berhad is one of Malaysia largest company and besides is an industrial gas fabrication since twelvemonth 1969. IOI Group Berhad was associated with existent estate to belongings development in 1982 followed by Oil Palm plantations in 1985.

Nowadays the nucleus concern of IOI Group is oil thenar plantation and besides a major participant in the belongings and leisure industries. At twelvemonth 2009, approximately 65 % net income income come from oil thenar plantation. IOI Group is become internationally known as a taking planetary incorporate thenar oil participant. This is because the IOI with the oil output about 6 metric tons per hectare per twelvemonth at its full-blown estates. The nucleus concern of IOI is located in Malaysia. The group besides has fabrication installations in other states.

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Nowadays IOI is already across major continents and functioning planetary markets in more than 65 states. IOI Group now has employees more than 30000 forces of more than 23 different nationalities in 15 states. IOI has established its leading place in the assorted concerns and the most efficient and profitable is in Malaysia plantation and belongings companies.

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Beside that the IOI Group is besides largest vegetable oil oleo chemical industry in Asia. The vision of IOI Group Berhad is to be a prima corporation in our nucleus concern by supplying merchandises and services of superior and by prolonging consistent long term growing in volume and profitableness.

IOI ‘s upstream plantation is where it all begins and this section entails their oil thenar estates and oil Millss located in the universe ‘s largest oil thenar turning part in Malaysia and Indonesia ( IOI Group, 2013 ) .

Part B: Porter five competitory forces

The porter five forces can assist us to find the industry profitableness.

Menace of new entrant

The menace of new entrant is really low. This is because the barriers entries are well high. They besides need a immense capital to put in order to be competitory. Since IOI Group has already established leading place, therefore the new entrants need to bring forth the merchandise is high quality to set up their market value. Beside that the deriving mandate from local authorities demand to take considerable sum of clip and resources to set up the new oil plantation or companies.

Menace of utility merchandise or services

The menace of utility merchandise or services is really low. Nowadays IOI Group oil thenar plantation and belongings companies are systematically ranked among taking companies in Malaysia. So is difficult to happen other company merchandise or service to replace.

Dickering power of providers

The bargaining power of providers is low. This is because the IOI Group is feedstock and natural stuff supply from their IOI plantation or from well-known concern spouses. IOI besides is a largest provider of certified sustainable thenar oil in Asia, Europe and the America and enable offer all their thenars based fractions as Roundtable on Sustainable Palm Oil ( RSPO ) Mass Balance across all parts.

Dickering power of purchasers

The bargaining power of purchasers is low. This is because IOI presenting superior value in their merchandises and services to their clients. IOI besides achieve through a civilization of invention, quality, consistence and fiting client outlook in their merchandises and services. The merchandise of IOI is besides count reasonably normal. So the client is non easy exchange to another merchandise.

Competitive competition

The IOI competitory competition is low. This is because IOI Group is a multi-national company with concern in oil thenar plantations, fabrication of oleo chemicals and forte fats and belongings development. In the international forepart, the chief rival is from Singapore listed Wilmar international Ltd and Indonesia PT Sinar Mas Agro Resources Tbk. In Malaysia merely have four rival which are Felda Group, Slime Darby Berhad, Kuala Lumpur Kepong Berhad and United Plantations Berhad.

Part C: Appraisal on the Management of the Company

IOI achieves the growing in the Group ‘s plantation concern over the old ages non merely through acquisitions, but besides because of typical plantation direction patterns that emphasize greatly on uninterrupted betterment in outputs and in cost efficiencies which enable the Group to be one of the most cost effectual manufacturers in the industry. IOI ‘s production squad will do certain that quality in the plantation trade begins with the usage of better-quality planting stuffs to guarantee high oil output and quality of the palm oil produced.

IOI Group is one of largest oil industry Malaysia. IOI besides has established its leading place in the assorted concerns. Beside that IOI Group has achieve many award and acknowledgment. Such as Anugerah Industri Sawit for Best-in-Class Palm-Based Oleochemical Company – IOI Oleochemical Industries Bhd, 2nd SEA ‘s Institutional Investor Corporate Awards – Malaya ‘s Top Ten Companies – IOI Group and others. In early twelvemonth 1969, IOI was gas industrial and the principal concern is distribution industrial gas. This is benefit to our state environment.

IOI Group has provided O to the environment. This make that Malaysians can populate in the environment fresh and wellness. Beside that IOI group has 3 chief concern nucleus like belongings, plantation and oleo-chemical. These show that the IOI group has many ways to derive gross from the concern. IOI Group is a nucleus of extremely energized, motivated and dedicated people who continuously strive for excellence in accomplishing the ends and aspirations of the Group. These are the extremely valued, dedicated and committed work squads that make a existent difference to the competitory border of the Group, helping the Group to frequently surpass many of its rivals in the assorted concern sectors that it is involved.

IOI Group is a possible company in the hereafter and besides established efficient and profitable in Malaysia. So that IOI Group is a good pick for the investor to put.


Part D: Ratio Calculations


Accounting Ratios

Year 2009

( RM’000 )

Year 2010

( RM’000 )

Year 2011

( RM’000 )

Part Tocopherol: Ratio Analysis

( I ) Tax return on assets




Tax return on assets

5.92 %

12.22 %

12.02 %

Tax return on assets ( ROA ) it measures the return on net income on entire assets, an indicant on how efficient a house is at utilizing its assets to bring forth net incomes. It means ROA indicates the how much cents that company can gain on each RM 1 of assets. Therefore, higher values of ROA is considered better because show that concern is more profitable. In twelvemonth 2009-2011, for every RM 1 in entire plus, IOI Corporation generated RM 0.0592, RM 0.1222 and RM 0.1202 in net income, severally.

An increasing tendency of ROA indicates that the net income of the house is bettering and diminishing tendency of ROA means that net income of the house is falling. So, ROA is crisp increased from 5.92 % to 12.22 % between 2009 and 2010 because net income of house has greater betterment ( addition from RM 983,517,000 to RM 2,035,661,000 ) . Although net income of house maintain bettering in 2011 but due to inefficient of manage plus, ROA of house in 2011 merely have 12.02 % . If IOI Corporations alteration to utilize more expensive works and equipment to bring forth income, their ROA will of course be lower than before which are low value plus.

( two ) Net net income border




Net net income border

6.74 %

16.23 %

13.76 %

Net net income border is the ratio to mensurate the return on net income on entire gross revenues, an indicant on how efficient a house to command its overall costs. Higher value of net net income border ratio is considered better because more proportion of gross is converted to net income. Net net income border ratio of 1 % means that a net net income of RM 0.01 is made on each ringgit of gross revenues. In twelvemonth 2009-2011, for every RM 1 in net income, IOI Corporation generated RM 0.0672, RM 0.1623 and RM 0.1376 in net income, severally.

An addition in net net income border ratio means that the net income is bettering. It is besides of import to compare the gross border ratio of a concern to the mean gross net income border of the industry. Besides, a concern which is more efficient and better controlling of its overall costs will hold higher net net income ratio. Due to greater betterment of net income, net net income border of house is increase from 6.74 % to 16.23 % between 2009 and 2010. However, the greater operating cost of house in 2011 cause net net income border ratio lessening to 13.76 % .

( three ) Current ratio




Current ratio

470.37 %

499.79 %

336.67 %

Current ratio is the ratio to mensurate current assets of a concern to its current liabilities, an indicant of the extent to which the company can cover the short term debt of its creditors by assets ( hard currency, histories receivable, stock list, etc. ) that are expected to be liquidated rapidly. Current ratio can state us whether the current assets of company are adequate to cover current liabilities or non. If current ratio below than 1 shows critical liquidness jobs because it means that entire current liabilities of house more than entire current assets. In twelvemonth 2009-2011, IOI Corporation has 4.7037 % , 4.9979 % , and 3.3667 % in current plus for every 1 % in current liabilities, severally. So, IOI company place is good and the liquid plus is high plenty to run into with short term duty.

Due to IOI important addition the sum of hard currency and bank balances, current ratio of house in 2009 to 2010 is increase from 470.37 % ( 4.7037 ) to 499.79 % ( 4.9979 ) . However, higher short term adoption and trade payables that make by IOI Corporations in 2011, cause current ratio crisp decreasing until 336.67 % ( 3.3667 ) . In general regulation, higher current ratio is consider better but if more than 250 % ( 2.5 ) might bespeak being of idle or underutilized resources in the house. So, the current ratio indicates that the company is inefficient to pull off their plus.

( four ) Total assets turnover




Entire assets turnover

91.36 %

72.32 %

82.19 %

Entire assets turnover is the ratio to mensurate the effectivity of the usage of all the house ‘s assets, an indicant on efficiency of the company utilizing its assets to bring forth gross. If a house can bring forth more gross revenues with fewer assets it has a higher turnover ratio which tells it is a good house because it is utilizing its assets expeditiously. In twelvemonth 2009-2011, entire gross of IOI Corporations is 91.36 % , 72.32 % and 82.19 % of entire plus, severally.

From 2009-2011, entire assets turnover of house have a crisp fluctuations. Due to greater declined of entire gross and greater increased of entire plus, entire assets turnover of house between 2009 and 2010 lessening 18.04 % point. Lower turnover ratios indicate that the company is non utilizing its assets optimally. They may besides bespeak that the assets are disused and companies with low plus turnover ratios are likely to be runing below their existent full capacity. However, from twelvemonth 2010-2011, entire assets turnover instantly increase 9.87 % point compared to last twelvemonth. It means betterment of the more gross revenues the company is bring forthing from its assets.

( V ) Debt ratio




Debt ratio

45.11 %

36.17 %

37.62 %

Debt ratio is utilizing to mensurate the per centum of entire liabilities of a concern to its entire assets, an indicant on entire assets of a concern to cover a house ‘s liabilities. Lower value of debt ratio is considered better because indicates that lower part of house ‘s assets are claimed by creditors. Higher value means higher hazard in operation since the concern would happen it hard to obtain loans for new undertakings. In twelvemonth 2009-2011, entire liabilities of IOI Corporations are 45.11 % , 36.17 % and 37.62 % of entire plus, severally.

Due to greater sweetening of entire plus, debt ratio of house between 2009 and 2010 is reduced from 45.11 % to 36.17 % . A low debt ratio in twelvemonth 2010 indicates the hazard associated with the house ‘s operation is lower and conservative funding with an chance to borrow in the hereafter besides no have important hazard. However, lower debt ratio may demo that the IOI Corporations has jobs of acquiring paid on its receivable and have long stock list turnover.

( six ) Basic net incomes per portion




Basic earnings/share




Basic net incomes per portion ratio is utilizing to mensurate the sum of net incomes of house per each outstanding portion of a company ‘s stock, an indicant of a company ‘s profitableness. A higher EPS is considered better because it means company is gaining more net income per outstanding portion they own. In twelvemonth 2009-2011, net incomes per portion of IOI Corporations are RM0.1662/share, RM0.3296/share and RM0.3475/share, severally. Continuous betterment of net income is of import factor of net incomes per portion ratio from twelvemonth 2009-2011 to demo the increasing tendency.

( seven ) Price per net incomes ratio








Price-earnings ratio is step market value of company portion monetary value to its net incomes per portion, an indicant on of how much investor is willing to pay for a ringgit of a house ‘s net incomes. It can demo the portion monetary value of a company is reasonably valued, undervalued or overvalued. If the justified price/earnings ratio in hereafter is higher than the current price/earnings ratio, the portion is undervalued and should be purchase. Conversely, if the justified price/earnings ratio in hereafter is lower than price/earnings ratio, the portion is overvalued and should be sale. In twelvemonth 2009-2011, investor is willing to pay RM 28.40, RM 15.20 and RM 15.25 for every RM 1 of gaining per portions that company produced, severally.

From 2009 to 2010, monetary value that investor willing to pay for RM 1 is crisp reduced RM 13.20. Even though IOI Corporations has greater betterment of gaining per portions, per centum additions of market value per portion is lower. In fact, higher monetary value to net incomes ratio indicates that the investor has high outlooks for the hereafter of the company portion and therefore it has bid up the monetary value of market. So, crisp decreased of monetary value to net incomes ratio from 2009 to 2010 indicates the investor does non hold much assurance in the hereafter of the company portion. In 2011, monetary value to net incomes ratio have small betterment.

( eight ) Return on equity




Tax return on equity

11.75 %

21.29 %

19.52 %

Tax return on equity ( ROE ) is ratio to mensurate a house ‘s net income of a concern during a twelvemonth to its shareholders ‘ equity during that twelvemonth, an indicant on how efficient a house is at utilizing its equity to bring forth net incomes. In general regulation, a higher value of return on equity is considered better because intending that the company is efficient in bring forthing income on new investing. However, it is non a just to reason that the house with a higher ROE is better investing because sometimes steadfast necessitate big substructure physique before bring forthing any gross.

In twelvemonth 2009-2011, for every RM 1 in entire equity, IOI Corporation generated RM 0.1175, RM 0.2129 and RM 0.1952 in net income, severally. Improvement of ROE between old ages 2009-2010 indicate efficiency at bring forthing net incomes from every unit of stockholders ‘ equity is enhance. This betterment is thanks to company public presentation. A high return on equity indicates that the company is efficient of direction to using its equity and disbursement sagely. However, from twelvemonth 2010 and 2011, return on equity ratio is decreased 1.77 % point.

Part F: Cash Flow Statement Analysis

Cash and hard currency equivalent is increased by 28.16 % from twelvemonth 2010 ( RM 3,877,306,000 ) to twelvemonth 2011 ( RM 3,877,306,000 ) . On other manus, Cash and hard currency equivalent in twelvemonth 2009 ( RM 2,459,382,000 ) to twelvemonth 2010 ( RM 3,877,306,000 ) is increase by 57.65 % . In short, within this three old ages ( 2009-2011 ) in twelvemonth 2010 attain highest hard currency and hard currency equivalent. IOI faces net lessening in hard currency and hard currency equivalents in twelvemonth 2011 ( RM 1,112,942,000 ) and 2009 ( RM 414,574,000 ) . Merely in twelvemonth 2010 IOI obtain net addition in hard currency and hard currency equivalents which were RM 1,448,360,000.

In twelvemonth 2011, the net lessening of hard currency and hard currency equivalent is caused by hard currency used in puting activities ( RM1,282,833,000 ) and funding activities ( RM739,815,000 ) can non cover net addition hard currency in operating activities ( RM 909,706,000 ) . In twelvemonth 2010, IOI can acquire increase of hard currency and hard currency equivalent due to net addition hard currency from operating activities ( RM 2,008,552,000 ) and lowest net hard currency used in puting ( RM 483,558,000 ) and funding activities ( RM 76,634,000 ) . Although IOI get highest net hard currency influx from operating activities ( RM 2,827,124,000 ) in old ages 2009, nevertheless can non cover net hard currency escape from funding ( RM2.517,096,000 ) and puting ( RM724,602,000 ) activities.

Operating net income before working capital alterations in twelvemonth 2011 is higher than in twelvemonth 2010 but IOI had higher hard currency outflow in working capital in twelvemonth 2010. Therefore, hard currency generated from operations in 2010 is higher than 2011. In twelvemonth 2009, IOI attains highest net hard currency from operating activities within these 3 old ages due to lowest working capital hard currency escape.

From twelvemonth 2009 to twelvemonth 2010, net hard currency escape in puting activities lessening by 33.37 % . Then from twelvemonth 2010 to twelvemonth 2011, hard currency used in puting activities addition by 165.30 % . In twelvemonth 2011, IOI used highest hard currency to finance noncurrent capital ( long term ) plus. IOI has highest disbursement on capital undertakings in twelvemonth 2011. This is because of IOI increases belongings, works and equipment.

In funding activities, from twelvemonth 2009 to twelvemonth 2010, net hard currency escape is 96.96 % . In add-on, net hard currency used in funding activities increased by 865.38 % from twelvemonth 2010 to twelvemonth 2011. Chief payments on debt, portion redemptions and hard currency dividend payments in twelvemonth 2010 is lowest one when comparison with others 2 old ages. In twelvemonth 2011, IOI cyberspace hard currency used in funding activities is highest within these 2 old ages.

Cash and hard currency equivalent is decreased 176.84 % from twelvemonth 2010 to 2011. On other manus hard currency and hard currency equivalent is increased by 449.36 % from twelvemonth 2009 to twelvemonth 2010. Due to drastically alterations in hard currency and hard currency equivalent alterations ( Increase/Decrease ) , it will do hard currency and hard currency equivalents at terminal of fiscal twelvemonth have important alterations.

Cash flow for every activity in each twelvemonth is significantly different. For illustration, IOI used net hard currency of RM 2,517,096,000 in funding activities in twelvemonth 2009 but in following twelvemonth merely used following hard currency of RM 76,634,000 in finance activities. Most often of puting activities will be a negative figure dominated by outgo on capital undertakings or long term plus but, that is non ever the instance because of depending on the nature of the concern.

Part G: Analysis on the Common Size Income Statement

Harmonizing to the consequence of the common size income statement, the gross of the IOI Group berhad was bead to the 85.91 % in 2010 but it increased to 110.64 % . The ground is the demand of palm oil and related merchandise increased dramatically, it occupy a large per centum of gross revenues. Finally, the cost of gross revenues dropped by 84.26 % in 2010, it is raised to 115.01 % due to the higher gross revenues. Therefore, the gross net income was dropped by 96.88 % because of the higher cost of gross revenues incurred. From the analysis, we know that the other runing income was increased dramatically by 581.72 % . This is because IOI Group gained in the fiscal derivative instrument which is high hazard high return on the implicit in plus and addition on disposals. Besides that, selling, selling disbursals was reduced by 90.80 % in twelvemonth 2010 to 85.49 % in twelvemonth 2011 because of the well- direction on disposal section. However, the cost of administrative was decreased by 99.20 % in twelvemonth 2010 and increased by 113.18 % in twelvemonth 2011.

In add-on, the other operating disbursals had dramatically increased by 131.49 % in twelvemonth 2011 due to loss on the fiscal derivative instruments. Finally, there are increased in disbursals since there is immense net income in invest in fiscal derived functions, so it could cover the loss, ensuing in increased in operating net income which increased by 133.89 % in twelvemonth 2010 and raised to 142.99 % in twelvemonth 2011.

Furthermore, in twelvemonth 2011, IOI Group had reduced in jointly controlled entities, therefore the involvement income would cut down by 78 % about. The ground that finances cost decreased because it did non borrow any loans in term of short term and term loans which reduced from 95.81 % in 2010 to 73.60 % in twelvemonth 2011. On the other custodies, the portion of associates was increased dramatically 553.28 % in twelvemonth 2010 and duplicate up to 1207.90 % in twelvemonth 2011.

Wholly, the net income before revenue enhancement was increased every bit good which increased by 164.54 % in 2010 and up to 20 % in twelvemonth 2011 which is 184.74 % . Since there is increased in net income, it made the revenue enhancement raised as good which is 99.71 % in 2010 to 117.69 % in 2011. Finally, the net income for the twelvemonth ended would lift up, even though the revenue enhancement increased but there is so much of gaining in gross revenues, fiscal derived functions, addition on disposal and so on.

IOI Group Berhad

Common Size Income Statement


2009 ( basal twelvemonth )


Percentage of base twelvemonth



Percentage alterations from 2009 to 2010



Percentage alteration 2011 comparison to 2009



100 %


= 85.91 %


=110.64 %

Cost of gross revenues

( 11,080,246 )

100 %

( 9,335,726 )

=84.26 %

( 12,743,689 )

= 115.01 %

Gross net income


100 %


= 91.11 %


=96.88 %

Other runing income


100 %


=202.01 %


=581.72 %

Selling and merchandising disbursals

( 277,668 )

100 %

( 252,129 )

=90.80 %

( 237,367 )

=85.49 %

Administration disbursals

( 310,217 )

100 %

( 307,736 )

=99.20 %

( 351,110 )

=113.18 %

Other operating disbursals

( 1,243,197 )

100 %

( 576,476 )

=46.37 %

( 1,634,722 )

=131.49 %

Operating net income


100 %


= 133.89 %


= 142.99 %

Interest income


100 %


= 78.24 %


=78.13 %

Finance costs

( 230,853 )

100 %

( 221,170 )

= 95.81 %

( 169,915 )

=73.60 %

Share of consequences of associates


100 %


=553.28 %


=1207.90 %

Share of consequences of jointly controlled entitles

( 258,344 )

100 %


=112.92 %


=119.74 %

Net income before revenue enhancement


100 %


=164.54 %


=184.74 %

revenue enhancement

( 486,943 )

100 %

( 485,517 )

=99.71 %

( 573,099 )

=117.69 %

Net income for the fiscal twelvemonth


100 %


=194.24 %


=215.44 %

Part H: Drumhead and Recommendation

We will reason that fiscal place and public presentation based on five standards which are the undermentioned:

Capital – This refers to the fiscal resources available for usage, such as hard currency, machine, edifices, mills, and so on. The higher the capital that a company holds the higher ability to absorb possible loss. Based on the entire plus turnover ‘s consequence show that there is increased in the turnover due to the company utilizing their assets to bring forth gross. Therefore, IOI Group can absorb the loss when their capital is higher.

Profitability – Since the assets of the IOI Group chiefly are refined palm oil and related merchandise which is a higher hazard plus, at the same time, it can convey in higher return as good. From the return on plus and return on equity, we know that there is increased in both compared to 2009. So, it indicates that IOI Group can bring forth higher net income.

Liquidity – it is used to find a company ‘s ability to pay off their short-run duty. In general, the higher the liquidness, the higher ability of the company can cover the short-run debts. From the current ratio, we can clearly see that the liquidness of IOI Group is rather higher which is 4.99 % in twelvemonth 2010 and 3.66 % in twelvemonth 2011.

Management – which is an administrative accomplishment of the company. The higher administrative accomplishment of the direction, the lower cost and the higher efficiency that a company can bring forth. The direction of IOI Group had good managed in the concern which diversified their concern in order to cut down the hazard of loss and generate higher net income. Besides that, IOI Group had achieved a acknowledgment that is Anugerah Industri Sawit for Best-in-Class Palm-Based Oleochemical Company.

Competition between industry – from the industry analysis that clearly show that IOI Group has better advantage of competition among industries which are the IOI Group has larger capital to set up their concerns, the menace of utility goods are low due to lower rivals prosecuting in this field, dickering power of provider, dickering power of purchasers and competitory competition are low.

Since the assets of the IOI Group are hazardous plus, so this is depend on the aim of the investors. If the investors are risk- taker, so they should put in this company. But if the investors are hedger or non-risk taker, they should do an analysis before they invest in the company.

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